"The critical reforms that MSMEs need are in areas such as banking sector and labour markets," said Anil Bhardwaj, Secretary General, FISME.

"MSME should be accorded special rights of recovering full payments due against the companies facing CIRP or Liquidation under MSMED Act," he said.

According to International Council for Small Business (ICSB), formal and informal Micro Small and Medium-sized Enterprises (MSMEs) make up over 90% of all firms and account on average for 60-70% of total world employment and 50% of world GDP.

Indian MSMEs that churn out over 6000 products (a large number of which are highly sought after across global marketplaces) are regarded as the backbone of its economy. Talking to ET, Anil Bhardwaj, Secretary General of the Federation of Indian Micro Small & Medium Enterprises (FISME), sheds light on the key issues plaguing the sector. Edited excerpts:

EconomicTimes (ET): The Government is expected to accelerate many pending reforms of the MSME sector. This includes redefining MSMEs based upon new turnover limit. How critical is this demand for Indian MSMEs?Anil Bhardwaj (AB): The new definition is important because only through the right definition you could ensure targeted policy interventions. So, whether it is the flow of finance through priority sector lending or market access through 25% central government purchase or delayed payment provisions, you want the beneficiary to be those who you consider in need of support. From this point of view, it is important. But it can neither enhance their competitiveness on its own nor shield MSMEs from global competition. In my view, it is not a reform, but a policy improvement. The critical reforms that MSMEs need are in areas such as banking sector and labour markets. Also, important is to bring down crippling cost of social security, improve access to affordable industrial space, orderly winding up and exit (for non-corporates) and an effective grievance redressal mechanism at all the three tiers district, state and the centre to bring down the cost of doing business.

ET: The Insolvency and Bankruptcy Code (IBC) in recent times has resulted in severe distress to many MSMEs. Do you think it could be made more pro-MSME? AB: There are two issues with regards to IBC. Firstly, it is yet to formulate and notify Rules for proprietorship and partnership firms. That means over 97 % of MSMEs are excluded from this vital reform, which allows an orderly resolution of failed firms and an honourable exit for an entrepreneur.

Secondly, as per the Corporate Insolvency Resolution Process (CIRP)/liquidation procedure, MSME suppliers are categorised as “Operational Creditors”, which all but leaves them out of participation in the entire process under IBC. There is no statutory protection of their payments under the resolution plan and/or liquidation which is guaranteed to the MSME under MSMED Act. The unfortunate fall out of this anomaly is that corporate NPAs will, in turn, lead to the generation of a plethora of MSME NPAs.

During pre-budget consultation with the Finance Minister, FISME has requested the creation of a separate sub-category of MSME within the Operational Creditors and accord the MSMEs with special rights of recovering full payments due against the companies facing CIRP or Liquidation under MSMED Act. MSME should be given the status of Financial Creditors under Insolvency & Bankruptcy Code, 2016 and accorded special rights of recovering full payments due against the companies facing CIRP or Liquidation under MSMED Act.

ET: What are your thoughts on the current NPA norms? Do you think these require a revisit by RBI?AB: Our view is that the RBI has not really got a handle to the problems of NPAs in the MSME sector. Therefore, the solutions RBI continues to propound are not grounded in reality and will continue to fail in their objective. We have raised the issue in detail to the High Powered Committee set-up by RBI under the chairmanship of UK Sinha.

ET: TReDS Exchange is touted as a game changer for solving MSME's working capital woes. However, the platform's awareness is still low. Despite the Central government making it mandatory for PSUs to register on the platform, there are still many that haven't. Your thoughts:AB: It is a game changing idea and has picked up momentum since PM Modi’s announcement making it mandatory for firms having a turnover above Rs 500 crore to list their MSME invoices on the TreDS platforms. The cumulative turnover at TreDS has already reached Rs 7,000 crore during the last fiscal and is expected to touch Rs 30,000 crore in FY 2019-20.

We have presented a similar transformative idea to de-clog the trade credit markets benefitting MSMEs and requested Government to create a multi-stakeholder agency on the lines of Credit Bureau (under Government control) having access to big data of GST, bank transactions and ROC filings. Based on which it would automatically create credibility report of companies and a scoring model. The agency will allow access to these reports to those who are willing to subscribe and on reciprocal basis ready to share the data– similar to CIBIL.